Name, Sometimes Called:
Williams Ultimate Oscillator
Also known as Ultimate Oscillator
Brief Description:
The Ultimate Oscillator is a single bounded oscillator
created from a security's prices over three different time ranges.
The TAI’s values range from 0 to 100 with 50 as the centerline.
Prices below 30 indicate the security is oversold, while prices
between 70 and 100 indicate the security is overbought.
Definitions, Formulas:
As noted above, the Williams Ultimate Oscillator uses
three time ranges. We use 7 periods (short), 14 periods (medium),
and 28 periods (long), as recommended in William’s original article,
listed under History, below.
Begin by calculation today’s True Low (TL):
TL = min(LTODAY, CYESTERDAY)
where
LTODAY = today’s low
CYESTERDAY = yesterday’s closing
price
Next calculate today’s Buying Pressure (BP):
BPTODAY = CTODAY
- TL
Then calculate today’s True Range (TR):
TRTODAY = max[(HTODAY
- LTODAY), (HTODAY
- CYESTERDAY), (CYESTERDAY
- LTODAY)]
where
CYESTERDAY = yesterday’s closing
price
HTODAY = today’s high price
Next, calculate:
BPSHORT = , BPMEDIUM
=
, and BPLONG
=
and
TRSHORT =
, TRMEDIUM =
, and TRLONG =
Next, calculate the raw Williams Ultimate Oscillator (RWUO):
RWUO = 4 * (BPSHORT
/ TRSHORT)
+ 2 * (BPMEDIUM / TRMEDIUM)
+ 1 * (BPLONG / TRLONG)
Finally, the Williams Ultimate Oscillator (WUO) is:
WUO = [ RWUO / (4 + 2 + 1) ] * 100
Positive Development Calculation:
For this TAI, a new positive development (NPD)
can occur if and only if the following two conditions are both met:
(1) A bullish divergence (BD) must exist. A BD is defined as a
lower price at the same time as the WUO is not lower. The WUO is
forecasting a price increase, but the price is falling.
AND
(2) The WUO fell below 30 during the BD period.
Under these conditions, an NPD
occurs when WUO crosses above the highest WUO during the BD period.
This TAI is no longer positive when either:
(1) WUO was greater than 50 then crosses under 40
OR
(2) WUO was greater than 70 then crosses under 70
If this TAI is still positive tomorrow, it will no longer be new,
but will be a cumulative positive development (CPD).
If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD).
History:
First described in Larry Williams’ April, 1985 article
for Technical Analysis of Stocks and Commodities magazine,
the Ultimate Oscillator is a single bounded oscillator created from
a security's prices over three different time ranges. The TAI’s
values range from 0 to 100 with 50 as the centerline. Prices below
30 indicate the security is oversold, while prices between 70 to
100 indicate the security is overbought.
Values of 7 periods, 14 periods, and 28 periods are recommended
in Williams’ article and are often used. These three time ranges
all overlap, that is, the 28-period range includes both the 14-period
range and the 7-period range. This means that the values in the
shortest time range are included three times in the calculation
and hence have a magnified influence on the TAI.
This chart shows the WUO indicator applied to Coca Cola (KO) during
the latter half of 1998. First notice point green-A. The WUO indicator
dipped below 30. Then there was a bullish divergence where price
was declining (see green line and green-C) and the WUO was increasing
(see green lines and green-B). Notice that the WUO increased whether
measured from top-to-top (see green-B1) or bottom-to-bottom (see
green-B2). This sets the stage for a WUO positive development when
WUO crosses the highest point during the divergence as indicated
by the green line and point green-D. About 9/29/1998 WUO crosses
this line and we have a new positive development. Point red-E indicates
where WUO crossed above 70 and WUO is no longer a positive development.
WUO predicted the price rise from about 58 to about 72.
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